Money Burning Improves Mediated Communication

TL;DR

This paper introduces a model where money-burning tactics enhance mediated communication by increasing commitment power, showing that such tactics generally improve sender payoffs and are applicable to Web 3.0 communities.

Contribution

It characterizes the sender's maximum equilibrium payoff with money-burning, linking it to robust Bayesian persuasion and demonstrating its general effectiveness.

Findings

Money-burning strictly improves sender payoff in most cases.

The model provides geometric interpretations of equilibrium payoffs.

Applicable to Web 3.0 communities for enhancing commitment.

Abstract

This paper explores the problem of mediated communication enhanced by money-burning tactics for commitment power. In our model, the sender has state-independent preferences and can design a communication mechanism that both transmits messages and burns money. We characterize the sender's maximum equilibrium payoff, which has clear geometric interpretations and is linked to two types of robust Bayesian persuasion. We demonstrate that, generically, the money-burning tactic \emph{strictly} improves the sender's payoff for almost all prior beliefs where commitment is valuable for the sender. Furthermore, our communication model directly applies to Web 3.0 communities, clarifying the commitment value within these contexts.